UK: Supreme Court Overturns Decision Finding Contract Incomplete And Declining To Imply Term

Last Updated: 20 February 2019
Article by Chris Bushell and Maura McIntosh

The Supreme Court has unanimously held that a binding agreement was reached between a property seller and an estate agent, despite the parties not having specified the circumstances in which the agreed rate of commission would fall due: Wells v Devani [2019] UKSC 4.

In doing so it overturned the majority decision of the Court of Appeal (considered here) finding that the agreement was incomplete because of the failure to agree this essential term, and that the court could not imply a term in order to transform an incomplete bargain into a legally binding contract.

The Supreme Court found that the only sensible interpretation of the parties' words and conduct was that the commission would be payable on completion of a purchase by a buyer introduced by the agent, so it was not necessary to imply a term. If it had been necessary, however, the court would have had no hesitation in doing so. It did not agree with the Court of Appeal that there is any general rule preventing the court implying a term where that will render the agreement sufficiently certain or complete to constitute a binding contract, and the conditions for implying a term are satisfied.

The decision emphasises the court's reluctance to find that an agreement is too vague or uncertain to be enforced where the parties intended to be bound and have acted on their agreement. Of course, as a practical matter, to avoid the risk that the courts will find their bargain unenforceable – or, conversely, imply a term that is not in fact what they intended – parties should ensure that all essential terms are expressly agreed.

Chris Bushell and Maura McIntosh consider the decision further below.

Background

The dispute centred on whether a binding contract had been entered into between a developer, Mr Wells, and an estate agent, Mr Devani, for the sale of flats in Hackney. The trial judge found that, in a telephone call, Mr Wells asked Mr Devani about his fees and Mr Devani replied that his standard terms were 2% plus VAT. There was no discussion of the circumstances in which that commission would fall due.

The High Court held that there was a binding contract, implying a term that the commission would be due to Mr Devani on the introduction of a buyer who actually completed the purchase. This was, the judge said, the "minimum term necessary to give business efficacy to the parties' intentions... the term least onerous to the client, and the one which nobody would dispute if an officious bystander were to suggest it".

The Court of Appeal overturned the High Court's decision by a 2:1 majority, finding in favour of Mr Wells that there was no legally binding contract. This was on the basis that the question of when the entitlement to commission was triggered was an essential term of the contract and, as the parties had failed to specify that event, their bargain was incomplete. The Court of Appeal recognised that terms may be implied into a concluded contract, but said it was wrong in principle to turn an incomplete bargain into a legally binding contract by adding express and implied terms together.

Mr Devani appealed to the Supreme Court.

Decision

The Supreme Court unanimously allowed Mr Devani's appeal. Lord Kitchin gave the leading judgment, with whom Lords Wilson, Sumption and Carnwath agreed. Lord Briggs gave a concurring judgment.

As Lord Kitchin said, the question of whether there was a binding contract required a consideration of what was communicated between the parties by their words and their conduct and whether, objectively assessed, that led to the conclusion that they intended to create a legally binding relationship and that they had agreed all the terms that the law requires as essential for that purpose.

The words and conduct relied on in a particular case may be so vague that it is impossible to identify the terms or attribute to the parties any contractual intention. However, he emphasised:

"the courts are reluctant to find an agreement is too vague or uncertain to be enforced where it is found that the parties had the intention of being contractually bound and have acted on their agreement".

In the present case, Lord Kitchin said, there was no need to imply a term into the agreement reached between Mr Wells and Mr Devani. Whilst there was no discussion of the precise event that would trigger payment of commission, absent a provision to the contrary, Lord Kitchin had no doubt that it would naturally be understood that payment would become due on completion. Indeed, he said, that was the only sensible interpretation of their telephone conversation and the circumstances in which it took place:

"...if, as here,... the bargain is, in substance, 'find me a purchaser' and the agent introduces a prospective purchase to whom the property is sold, then a reasonable person would understand that the parties intended the commission to be payable on completion and from the proceeds of sale."

However, if it had been necessary to imply a term, Lord Kitchin would have had no hesitation in implying a term that payment would fall due on completion of a purchase by a buyer Mr Devani had introduced. Applying the Supreme Court's decision in Marks & Spencer Plc v BNP Paribas [2015] UKSC 72 (considered here), such a term would be necessary to give the contract business efficacy and would not go beyond what was necessary for that purpose.

Lord Kitchin did not accept that there is any general rule, as found by the Court of Appeal, that a term cannot be implied into an agreement to render it sufficiently certain or complete to constitute a binding contract. He added:

"Indeed, it seems to me that it is possible to imply something that is so obvious that it goes without saying into anything, including something the law regards as no more than an offer. If the offer is accepted, the contract is made on the terms of the words used and what those words imply. Moreover, where it is apparent the parties intended to be bound and to create legal relations, it may be permissible to imply a term to give the contract such business efficacy as the parties must have intended. For example, an agreement may be enforceable despite calling for some further agreement between the parties, say as to price, for it may be appropriate to imply a term that, in default of agreement, a reasonable price must be paid."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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